Owning your home outright remains considerable more attractive than renting it, as a new survey just reaffirmed. For one thing, tenants bear a greater cost burden. On the other hand, homeownership helps to build up capital, and is therefore an important mainstay of your retirement scheme. Especially for young households, buying property is a great way to start building capital because they can stretch their payments over a longer period of time. Despite all this, more than half of the German population rent their homes (54.4 percent). Especially young people tend to rent rather than buy. As a result, they often spend more on housing than homeowners. According to a survey conducted by the IW German Economic Institute in Cologne, housing costs are about one third lower for homeowners than for tenants. Still, the homeownership rate in Germany remains on a low level. What makes it hard for young people to buy property are the incidental acquisition costs and tight capital adequacy requirements.
The incidental acquisition costs account for up to 15 percent of the purchase money. They include specifically the real estate transfer tax, the fees due to estate agent and notary, and the land registration. Government funding programs are supposed to make it easier for young people to buy a home. But there is still plenty to do. Here is an example: The planned child tax credit for first-time home buyers would only create short-term stimuli and is considered highly cost-ineffective. The program could admittedly help to lower the capital requirements. But it creates the risk that people delay the acquisition of a home until after they actually started a family. To create long-term incentives for buying a home of their own, experts of the IW Economic Institute, Cologne, consider sureties or a reform of the real estate transfer tax a much better approach. Policymakers should develop new incentives that further lower the hurdles to homeownership especially for young people.
The survey confirms that the parameters for the acquisition of residential property remains attractive despite the rise in selling prices. In many German counties, the financial burden of a homeowner is no higher than that of a tenant, even with the loan payments taken into account. Moreover, experts believe that the financing conditions will remain stable for the time being. So whenever the opportunity presents itself to repay the amount borrowed before entering retirement, e.g. by opting for homeownership early on in life, the acquisition of property is also an attractive pension scheme. Anyone meeting the requirements for buying property is therefore well advised to consider homeownership even at an early age.